Bob Brinker's Marketimer

  Tuesday November 21, 2017

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MAKING CONTRIBUTIONS
Learn even more about this topic with the Encyclopedia of Personal Finance™

Contributions to a 401(k) plan can take several forms:

Employee contributions. These are contributions the employee makes to the plan with after-tax dollars. This type of plan is sometimes referred to as a "thrift plan."

Matching contributions. These are contributions that an employer makes to an employee's plan after the employee has contributed. For example, assume the employer agrees to deposit (or match) 50 percent of the employee's first 10 percent deferral. In such an instance, if the employee deposited 10 percent, the employer could add an additional 5 percent. The total percentage deposited for the employee therefore would equal 15 percent.

Elective contributions. These are before-tax contributions made by an employee. They are funds that the employee could have taken as a cash amount but instead deferred to the plan. They are also called elective deferrals.

Non-elective contributions. These are funds that are automatically put into the plan by the employer. The employee is not allowed to receive them alternatively as cash.

Before you can make contributions to your 401(k), you'll need to know what requirements these plans have.




LEARN EVEN MORE WITH THE ENCYCLOPEDIA OF PERSONAL FINANCE. CLICK HERE!

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